Carbon markets can play a really important role as they provide clear economic signals and mechanisms to attract investment in sectors with climate mitigation impacts. The potential from Carbon markets is huge. The development of Vietnam’s domestic Carbon market will help to strengthen international integration and through the Carbon market can open up more financial resources.
What is the Carbon Credit Market?
The term Carbon market originates from the 1917 Kyoto Protocol on climate change. Accordingly, the Carbon credit market is considered one of the important solutions to limit the amount of emissions that cause the greenhouse effect and climate change based on the exchange of emission quotas. Units, organizations/enterprises with large emissions are forced to pay to buy more emission rights. And conversely, units, organizations/enterprises with low emissions or the ability to store and recover emissions will receive additional financial benefits.
To put it simply: the carbon credit market is an environmental protection tool based on market mechanisms and the principle that polluters must pay. This is also Vietnam's new approach introduced by the 2020 Environmental Protection Law, which officially took effect from January 1, 2022.
What is Carbon Credit?
A Carbon Credit is a permit or certificate that allows the holder to emit a certain amount of CO2 or another greenhouse gas.
One credit allows the emission of 1 ton of CO2 or equivalent in other greenhouse gases. The main objective of generating carbon credits is to reduce the emissions of CO2 and other greenhouse gases from industrial activities, in order to reduce the impact of global warming.
To reduce greenhouse gas emissions:
- First, businesses must pay for additional credits if their emissions exceed the limit.
- Second, they can make money by reducing emissions and selling their excess credits.
- Carbon credits will have different prices, depending on location and where they are traded.
Potential from selling carbon credits in Vietnam
Countries with large areas of natural forests will have great potential for commercializing Carbon credits. Vietnam is one of the leading countries assessed to be able to exploit Carbon credits.
Vietnam is moving towards a sustainable forestry sector, meeting market requirements, including green finance and carbon market participation. According to experts, this is a relatively large and stable source of finance for forest owners to implement forest protection management and stabilize their lives. Therefore, Vietnam's agriculture and forestry sector needs to take the lead in this trend to increase profits from now on.
In fact, in the past few years, Vietnam has successfully conducted carbon credit sales, with a total value of up to about 60 million USD. Of which, the Vietnam Livestock Biogas Program with 181,683 biogas plants built, has been assessed by international organizations as having contributed to reducing greenhouse gas emissions. Through the Biogas Program, Vietnam has so far sold 3,072,265 carbon credit units, earning 8.1 million USD.
How to buy and sell Carbon credits in Vietnam?
Decree 06/2022/ND-CP in Article 19: Exchange of greenhouse gas emission quotas and carbon credits in the domestic carbon market.
1. The exchange of greenhouse gas emission quotas and carbon credits is carried out on the carbon credit exchange and domestic carbon market according to regulations.
2. Greenhouse gas emission quotas, tradable carbon credits:
a) The greenhouse gas emission quota specified in Clause 2, Article 12 is traded on the floor. 01 greenhouse gas emission quota unit is equal to 1 ton of CO2 equivalent.
b) Carbon credits obtained from programs and projects under the carbon credit exchange and offset mechanism are allowed to be converted into offset units for greenhouse gas emission quotas on the trading floor. 1 carbon credit is equal to 01 ton of CO2 equivalent.
3. Auction, transfer, borrow, pay back greenhouse gas emission quotas, use carbon credits to offset greenhouse gas emissions.
a) Facilities may bid to acquire additional greenhouse gas emission allowances in addition to the greenhouse gas emission allowances allocated for the same commitment period.
b) Facilities can transfer unused greenhouse gas emission quotas from the previous year to the following years within the same commitment period;
c) Establishments may borrow greenhouse gas emission allowances allocated for the following year for use in the previous year within the same commitment period.
d) Facilities can use carbon credits from projects under carbon credit exchange and offset mechanisms to compensate for greenhouse gas emissions exceeding the allocated greenhouse gas emission quota in a commitment period. The number of carbon credits to offset emissions must not exceed 10% of the total greenhouse gas emission quota allocated to the facility.
d) The allocated greenhouse gas emission quotas will be automatically revoked by the Ministry of Natural Resources and Environment when the facilities cease operations, dissolve or go bankrupt.
e) The State encourages establishments to voluntarily return unused greenhouse gas emission quotas to contribute to the national greenhouse gas emission reduction target.
g) At the end of each commitment period, establishments must pay for greenhouse gas emissions exceeding the allocated greenhouse gas emission quota after applying the forms of auction, transfer, borrowing, and use of carbon credits for offsetting. In addition to paying, greenhouse gas emissions exceeding the allocated quota will be deducted from the quota allocated for the following commitment period.
h) The Ministry of Natural Resources and Environment guides the auction, transfer, borrowing and repayment of greenhouse gas emission quotas.
Instructions on how to calculate Carbon credits?
There are currently 2 methods to calculate Carbon credits below:
1. Activity-based approach
Recipe:
GHG emissions = Emission factor * Consumption/output
In there:
Emission factor: This factor is specified by international or national organizations to calculate GHG emissions for each specific activity.
Greenhouse gas emissions: multiply the emission factor by fuel consumption, raw materials, product output, etc.
For example: A factory uses 100 tons of coal in a year. The emission factor of coal is 2.49 tons of CO2/ton of coal. The CO2 emissions of the factory are:
CO2 emissions = 2.49 tons CO2/ton coal * 100 tons coal = 249 tons CO2. To offset this emission, 1 ton CO2 is equivalent to 1 carbon credit, so the factory needs to have or buy 249 Carbon credits.
2. Performance-based approach
Recipe:
Emission reduction = Pre-project emissions – Post-project emissions
Determine emissions before and after implementing the emission reduction project.
The reduced emissions will be converted into Carbon credits.
For example: A company implements a forestation project to reduce GHG emissions. Emissions before the project were 100 tons of CO2/year. After the project was implemented, emissions were reduced to 50 tons of CO2/year. The amount of emissions reduced is:
Emission reduction = 100 tons CO2/year – 50 tons CO2/year = 50 tons CO2/year. The company will receive 50 Carbon credits.
